Royal Mail braces for deregulation

It's been a challenging year for Royal Mail. The postal operator's plans to introduce pricing in proportion (PiP) got a mixed reception and it has been heavily criticised for poor delivery times and missing letters.

But 2006 is likely to prove even more testing. In January, the UK mail market will open its doors to full competition and mailers are already changing their allegiances. Energy provider npower is the latest company to have switched its custom to TNT Mail, part of Dutch monopoly TPG Post.

TNT already handles some direct marketing for Lloyds TSB and Sky, and its three-year contract with npower will include mailing customer statements and DM material. Npower sends an average of 60 million pieces a year, around half of which it says is direct marketing. The company expects to see immediate price benefits.

Cost reductions

"Npower has made the switch to TNT for several reasons," says Hilary O'Grady, npower's logistics manager. "One is obviously to take advantage of the reduced costs. Another is that using TNT allows us to track our mail further down the delivery chain and we expect most of our mail to be delivered faster."

For its part, Royal Mail says it is making a concerted effort to understand customers' requirements. "I'm not sure there's any evidence to show it makes any difference deep down whether you track mail or not," says Alex Batchelor, director of marketing at Royal Mail. "Most clients are just interested in knowing that the post has reached its final destination."

O'Grady says parts of Royal Mail are "more removed from customers and adopt an inflexible 'rules are rules' approach on the most trivial of issues", which has, at times, delayed some of npower's mail being sent out.

This is a serious issue for mailers – a delay can mean call centre staff are left idle and campaigns lose their value.

"A lot of businesses have switched already as they are seeking innovation," says Paul Jackson, chairman of mail management service Triangle. "Direct marketers want day- definite delivery rather than frequency, as well as better account management and improved reporting and control procedures.

I can see a new postal delivery that does Sundays only because that is when most people are in. The real issue, though, is how much of the delivery service will remain with Royal Mail."

TNT and other carriers pay Royal Mail to access its delivery network.

Last year, TNT linked up with Express Dairies to provide Royal Mail's only competitor in the residential delivery market.

It delivered items such as books, catalogues, CDs, DVDs and contact lenses.

But Express Dairies has announced that it will stop its mail operation next month because volumes did not meet expectations. It says Royal Mail's PiP proposals will also reduce the margin and the scope to undercut prices.

TNT now intends to hire postal delivery workers and roll out an aggressive end-to-end service for letters and heavier items over the coming months.

But Royal Mail may still have the upper hand when it comes to delivery.

"Our competitors seem happy to find a space in the middle area of the market, allowing us to take care of the delivery," says Batchelor. "Delivery network providers have struggled to date."

Find the right provider

But it is not just the carriers that are gathering steam ahead of deregulation.

OnePost, a division of mail-sorting software firm Postal Choices, will soon launch a mail comparison service. OnePost will run clients' data through its software to match companies with the mailing providers and services that best suit their needs.

OnePost is working with Royal Mail, TNT, Citispeed and DHL Global Mail UK. Royal Mail says it welcomes the service but is concerned that the choice of carrier may come down to price.

"We are looking to provide the widest coverage possible," says Graham Cooper, OnePost's managing director. "As more businesses try out new carriers, others will feel less reluctant about switching."

Royal Mail is planning to improve areas of its bulk mail service, such as offering verification on site and extending its mail acceptance times.

"If, for example, TNT is going to offer to pick up mail later than Royal Mail does, we will need to recognise if that is a requirement," says Batchelor.

However, the operator is not known for achieving changes quickly and these improvements may not go far enough for some in the industry.

Deregulation may be just around the corner but, if the competition is anything to go by, Royal Mail has some way to go to stand out from the crowd.